Commercial Construction Fills Gaps Left By Residential Slowdown
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One of the biggest concerns of the residential housing slowdown was the effect on the economy that all of the unemployed builders were going to put on the economy. The thinking was that with so many people laid off with the slowdown of new construction, that would be another aspect that pushed regions into recession.
Well, in one region of the country, Orange County, California, the marketplace has shown amazing resiliency. Instead of construction slowing down due to a residential slowdown, it has actually gone up as commercial construction has filled the void.
Could it be that the demand for residential construction employment so deeply impacted the labor pool that commercial jobs had to be postponed? And now that labor has loosened up a bit, these commercial jobs are moving forward? Or is the new population additions requiring more commercial infrastructure? Whatever it is, the sting of a residential slowdown in this California area is being negated by a very robust commercial growth spurt.
The relationship between real estate and jobs is a complicated one. On the one hand, a lack of affordable housing can hurt growth, as economist Mark Schniepp wrote in the UCLA Anderson Forecast’s 2007 Orange County Outlook.
“Housing poses the largest constraint to significant job creation and net migration in Orange County,” Schniepp concluded. “To the extent that affordable and available housing is present, economic growth in the form of job creation would expand.”
But as Anil Puri and Mira Farka of Cal State Fullerton said in their 2007 economic forecast for Orange County, housing prices take time to show up in the job picture.
“Higher housing payments require that more jobs with higher salaries and value be created,” they wrote. “The supporting jobs, mostly in the population-serving categories such as restaurants and recreational activities, building maintenance and related areas, will also increase but these tend to be towards the lower end of skill level and consequently lower-paying.”
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Commercial construction is booming in Orange County at just the right time.
The boom is injecting money and jobs into the economy just as other work opportunities are being drained by a drop in homebuilding and other residential real estate industries.
Forecasters at Chapman University’s A. Gary Anderson Center for Economic Research, for example, expect nonresidential construction in the county to outpace residential next year – reversing the norm of the housing boom.
Nonresidential construction should rise 4 percent in value next year to $2.4 billion. That compares with an 8.7 percent drop in housing construction to $2.1 billion.
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Comment by Nigel Swaby on 9 January 2007:
I just had quite the debate about this very topic with a huge housing bear.
http://slcrealestate.blogspot.com/2006/12/commercial-construction-will-absorb.html